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As we discussed in Different Types of Auctions, auctioneers and their clients have the choice between with reserve and without reserve auctions.
In the with reserve auction format, there are different varieties.
- Known, stated minimum bid, which if met or exceeded, the item sells
- A secret, undisclosed minimum bid, which if met or exceeded, the item sells
- Seller retains the right to accept or reject the high bid, regardless
No matter which variety, we’ll discuss here the reasons an auctioneer might prefer to conduct a “with reserve” auction, rather than a “without reserve” auction.
We have tracked five (5) different reasons why with reserve auctions are held. We’ll detail each with an example and/or further clarification.
To get the consignment
Some auctioneers are willing to take an item or items to auction with reserve because of the notoriety or publicity that item may bring to the auction. An auction with several ancient artifacts might benefit overall by the addition of a very rare, unique artifact, even if that particular item is selling with reserve.
Too, the auctioneer may benefit later with future similar consignments by owners who saw the auctioneer’s auction with that rare artifact. Lastly, the auctioneer has the opportunity to earn a commission upon sale, and possibly a no-sale fee in the event the reserve item does not sell.
To protect against uncertainty
No auction results in a guarantee of sale for a certain price, no matter the format. In a with reserve auction, the auctioneer can assure his client that if a certain item (or items) don’t seem to be demanding expected attention, that the auctioneer can “no-sale” those items, and hold them back for another auction, or return them to the seller. This might be more of an issue at an auction where there are an abundance of the same type of items (500 pieces of pottery, for example) where the with reserve auction allows the auctioneer the discretion to not sell any one piece that doesn’t meet his seller’s demands. Or, if a farm auction had an abundance of tractors and other farm equipment, and only one piece of jewelry, such as a diamond ring, the with reserve format allows the auctioneer to protect this one item against low demand.
To satisfy liens and/or allow for transfer of title
Especially in real estate auctions, but also in chattel auctions where items have liens, a with reserve auction allows the seller to protect against having to “bring money to close” in the event an item would sell below the lien amount. And, as many sellers have no means of bringing any money to close, the with reserve auction allows the item to sell only if the high bid is sufficient to payoff those liens.
To give the seller the choice of selling or …
Some sellers would say, “I really love this antique settee, and I would like to keep it unless it demands over $1,000. Now, if it demands $1,000 or more, I could use that money in lieu of my love for the settee.” Or, similarly, a seller could have a car in an auction where a dealer has already offered him $12,500. So, the seller would sell the car at the auction if the net proceeds exceeded this $12,500, or otherwise would keep the car, and sell it to the dealer. A with reserve auction would be appropriate for any of these types of scenarios.
Necessary to have third-party approval
Most often found in court actions, a with reserve auction allows some third-party to retain final approval of the high bid amount, either confirming or denying the high bidder as the new owner. Many courts, such as Probate, Bankruptcy and Civil authorize items to be sold at auction, but typically wish to retain final approval.
I have said that I predict The Death of Reserve Auctions but until this eventual death, these will probably remain the reasons auctioneers conduct with reserve auctions.
Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.face book.com/mbauctioneer. He is Executive Director of The Ohio Auction School.